Retiring

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Topic Author
seeker
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Joined: Wed Sep 26, 2007 4:45 pm

Retiring

Post by seeker »

I am retiring in Jan. I'm married and will be 62 in Jun. I have no debt. I own a home.I currently have $1,400,000 in a Tax-Exempt MM $100,000 lattered CDs I have $500,000 in a 401K account in 4 equity funds.
I will have $20,000 a year in an annuity recieved from company and thinking of taking SS in Jun also $20,000

I am seeking advice on investing the 401k account and how to invest the $1,400,000 in order to realize appx.$50,000 or more income while keeping pace with inflation

I'm not sure if I should use tax-exempt investments, or if I should start SS at 62. I am open to all advice, If any more info. is needed please ask.
Sidney
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Post by Sidney »

Welcome to the boards.

First, it is hard to tell exactly what your goal is... 50K after tax? Including 401K income etc? But here are some thoughts.

Assuming you want to keep your equity level at 25% of your total assets, when you retire, I'd consider rolling the 401K to an IRA.

Second, I'd put the $500k IRA in TIPS or TIPS mutual fund. This would help cover some of your inflation concerns.

I'd look to create a simple equity postion in taxable such as;

15% in Vanguard Total Stock Market Index and
10% in Vanguard FTSE All-world ex-US index funds.

Depending on my tax rate, the balance I'd put in some combination of intermediate tax-exempt bond fund and short term tax-exempt bond fund.

Keep in mind that you should be focusing on total return and not just "income" per se. You can always pull funds out of various asset classes to handle cash flow. With 25% equity and the rest in some reasonable mix of tax-exempt bond funds (excluding the TIPS in 401K) you should have adequate liquidity to handle cash flow needs.

If you are willing to take on a bit more risk you could increase the equity position above the 25% level.

rgds,

Sid
I always wanted to be a procrastinator.
YDNAL
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Post by YDNAL »

seeker,

Welcome. You are counting on $40K [pension + SS] and need another $50K to maintain your intended lifestyle in retirement.

With $2M, a 2.5% SWR [safe withdrawal rate] will give you $50K. This indicates a fairly low NEED to take risk. With real returns of ~5%, you should cover the SWR + current inflation. TIPs, as suggested by Sid, will also give you some of that inflation protection.

Code: Select all

The Harvard study.

In 1973, Harvard University did a study to determine how much they could safely withdraw from their endowment fund without eroding the principal. Assuming a portfolio of 50% stocks and 50% bonds and cash, Harvard's analysts calculated they could withdraw 4% the first year and then adjust the subsequent year's withdrawals for inflation. For example, if there was 10% inflation, the second year's withdrawal would be 4.4% of the initial (i.e., first year) asset value.

The Trinity study.

Trinity University (San Antonio, TX) researchers conducted a study to measure the "success rate" of various portfolios from 1926 to 1995. The "success rate" is the percent of time a retiree could sustain a given withdrawal rate without depleting his retirement assets. One portion of the Trinity study adjusted withdrawals for inflation/deflation, much like the Harvard study. This analysis showed that of the portfolios considered, the optimal asset mix is 75% stock/25% long term corporate bonds. For a 30 year payout period and a 4% withdrawal rate, this mix had a 98% success rate. At a 3% withdrawal rate, the 75/25 mix had a 100% success rate. Interpolating these results would give you a "safe" withdrawal rate of slightly less than 4%, virtually identical to the Harvard study.
I have some questions,
1) Have you done some estate planning?
2) Are you looking to leave a nice inheritance to kids/family?
3) Do you have health care coverage until Medicare?
4) Do you have long-term care coverage?

Regards,
Landy
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bob90245
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Re: Retiring

Post by bob90245 »

seeker wrote:I am seeking advice on investing the 401k account and how to invest the $1,400,000 in order to realize appx.$50,000 or more income while keeping pace with inflation
Your initial withdrawal rate is 3.5% ($50K/$1.4M). This is a conservative amount and below the 4% rule-of-thumb that is commonly talked about. Therefore, I would say an equity allocation of somewhere around 30 to 50 percent should work. If you want to keep it simple, then just put it all in a balanced fund like Vanguard's Wellesley fund (VWINX). Click HERE. Probably don't need to get any fancier than that.

I wish there was an easy-to-read reference that I could point you to if you want to study more. Unfortunately, investing during retirement is not an easy subject. So I hesitate to point you to my website. But if you're brave, here it is:

http://bobsfiles.home.att.net/CompleteW ... Links.html
Topic Author
seeker
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Joined: Wed Sep 26, 2007 4:45 pm

Post by seeker »

I have looked into estate planning
Yes I have a son 25 and want to leave him a good amount
Yes we have health insurance paid by company
No long term care
grok87
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Joined: Tue Feb 27, 2007 9:00 pm

Re: Retiring

Post by grok87 »

seeker wrote:I am retiring in Jan. I'm married and will be 62 in Jun. I have no debt. I own a home.I currently have $1,400,000 in a Tax-Exempt MM $100,000 lattered CDs I have $500,000 in a 401K account in 4 equity funds.
I will have $20,000 a year in an annuity recieved from company and thinking of taking SS in Jun also $20,000

I am seeking advice on investing the 401k account and how to invest the $1,400,000 in order to realize appx.$50,000 or more income while keeping pace with inflation

I'm not sure if I should use tax-exempt investments, or if I should start SS at 62. I am open to all advice, If any more info. is needed please ask.
Welcome Seeker,
It is best to manage all of your accounts as one portfolio. Based on the above, I think you have $2,000,000 in funds to manage. Here are some questions that will help us give you the best possible advice:

1) Does your goal of $50,000 or more of income assume you will start taking SS in June? If you deferred social security for a while, would you then need $70,000?

2) You didn't mention any investment info for your wife. Does she have any IRAs, pensions, etc. Again it is best to manage all your accounts as one portfolio. Does the $20,000 you expect to receive from SS if starting in June include here SS payout? (probably not, I'm assuming she's not eligible yet).

3) What is your income tax rate and is there state income tax also?

4) As other posters have recommended, probably it is best to rollover your 401k into an IRA, say at Vanguard. If you don't want to do this, please provide the funds in the 401k, both the ones you own, and the other available funds, along with their expense ratios.

cheers
grok
YDNAL
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Retiring

Post by YDNAL »

seeker wrote:
I currently have $1,400,000 in a Tax-Exempt MM $100,000 lattered CDs I have $500,000 in a 401K account in 4 equity funds.
bob90245 wrote:
Your initial withdrawal rate is 3.5% ($50K/$1.4M). This is a conservative amount and below the 4% rule-of-thumb that is commonly talked about.
Bob,

I think that it's important to clarify the seeker's porfolio is $2million and not $1.4million. The SWR then is only 2.5% for the $50K needed by seeker.

seeker,

My main concern right now is that you may not be providing sufficient growth to provide the SWR of 2.5% to make sure your money lasts to cover your needs in retirement and that a nice inheritance is left for your son.
1) You have $1.5million in MM and CDs.
2) You have $0.5million in stocks.
3) This means 25% of the total is in Equities.
4) We don't know anything else about the equities, and/or other accounts perhaps in your wife's name, etc.

Grok added additional questions that we need answers in order for you to receive the best possible advice.

Regards,
Landy
Valuethinker
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Re: Retiring

Post by Valuethinker »

seeker wrote:I am retiring in Jan. I'm married and will be 62 in Jun. I have no debt. I own a home.I currently have $1,400,000 in a Tax-Exempt MM $100,000 lattered CDs I have $500,000 in a 401K account in 4 equity funds.
I will have $20,000 a year in an annuity recieved from company and thinking of taking SS in Jun also $20,000

I am seeking advice on investing the 401k account and how to invest the $1,400,000 in order to realize appx.$50,000 or more income while keeping pace with inflation

I'm not sure if I should use tax-exempt investments, or if I should start SS at 62. I am open to all advice, If any more info. is needed please ask.
You really need to consider the impact of falling interest rates on your MMFs.

IN 2002-03, the yields on many MMFs dropped to 1%. It could happen again if the housing market continues its weakness and the US slips into recession (I don't consider that likely, but there is that risk).

I don't want to generally comment re your asset allocation, but your protection is to 1). ladder CDs (say up to 5 years) 2). invest in short term and medium term bond funds. That would protect your income, but would expose you to risk of capital loss if interest rates rose.

Roughly speaking you can measure that risk by taking the Duration of the bond fund (which is widely published) and multiplying by the interest rate change. So a bond fund with 5 years duration (medium term) would fall by 5% in NAV if interest rates generally rose by 1%. *however* the income from that bond fund would be relatively little changed and would rise over time.

(it's not a perfect measure, duration, because there are some underlying assumptions, but as a rough rule of thumb, it is a good one).

As an example, the duration of a 5 year CD might be around 3-3.5 years. The duration of a ST bond fund might be around 2.5 years.

Of course, if interest rates kept falling, longer duration works in your favour (as long as you don't own mortgage-backed securities like GNMAs, Fannie Maes, Freddie Macs-- mortgage backed securities have their own special logic when interest rates are falling).

It's generally best practice to defer SS as long as possible, I believe, depending on spousal situation, personal health (if your life expectancy is shorter than average, say, then take it sooner rather than later), etc.

The reason being SS is indexed to inflation, and so increasing the amount of a growing, inflation indexed investment stream is a good strategy.

As I understand it, until you begin to collect SS, your eligible amount is indexed to real labour incomes (which rise faster than inflation). Plus you get an actuarial benefit (from deferring). Then once you begin to collect, your indexation drops to inflation.
Topic Author
seeker
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Post by seeker »

My goal is $90,000 per year. SS $20, Annuity $20 and $50 investments
I'll have no income in 2008 so my tax bracket will be based on above
I could use less $$ if it were tax free
I plan on moving 401K to Vanguard
Topic Author
seeker
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Post by seeker »

I live in NJ
grayfox
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For Taxable Income use Dividends Stocks and Tax-Exempt Bonds

Post by grayfox »

To get 50K in income from the 1.4M in your taxable account is easy. Put 75% in NJ Municipal Bonds and 25% in large, blue-chip dividend-growing stocks.

On the bond side use AAA-rated Munis from your state. Either buy individual Munis or something like Vanguard NJ Long-Term Tax-Exempt Admiral which currently yields 4.11%
On the stock side use blue-chip dividend stocks, either 30 or so stocks or an ETF like I-Shares DVY. DVY yields 3.39% and I estimated a 6% growth rate on the dividend.


ASSET.....................SYMBOL...PERCENT..PRINCIPLE.......YIELD.....INCOME...GROWTH..TOTAL RETURN
DIVIDEND STOCKS......DVY........25%.........350,000.........3.39%....11,865......6.00%.....9.39%
NJ LT TAX-EXEMPT.....VNJTX......75%......1,050,000.........4.11%....43,155.....0.00%......4.11%
TAXABLE PORTFOLIO...............100%......1,400,000.........3.93%....55,020....1.500%.....5.43%

Most of your income is tax-exempt, the rest is mostly qualified dividends at 15% rate, you get growth with the stock portion, and limited downside even in the worst bear market. If the market drops 50% this portfolio will only be down maybe 10%

In fact you can adjust the amount of stock to suit your tolerance for risk vs. desire for growth in the income stream. I would say anywhere from 25% to 50% stock and you still get enough income to meet your needs. for example at 50/50 your income is about the same but you risk a larger drawdown (about 20%) during a bear market:

ASSET..................SYMBOL.....PERCENT...PRINCIPLE......YIELD...INCOME..GROWTH..TOTAL RETURN
DIVIDEND STOCKS...DVY...........50%........700,000.......3.39%....23,730.....6.00%....9.39%
NJ LT TAX-EXEMPT...VNJTX.........50%.......700,000.......4.11%....28,770.....0.00%....4.11%
TAXABLE PORTFOLIO................100%....1,400,000.......3.75%....52,500....3.00%.....6.75%

This is simple. You don't have to run Monte Carlo simulations to determine a Safe Withdrawal Rate. Unlike the casino withdrawal methods that have 5% chance of running out of money in 30 years, with this approach since you never have to sell anything the chance of running out of money is practically zero. Every bond would have to default and all your companies would have to go bankrupt.

Just have the interest and dividend income directed to the NJ Tax-exempt MM and set up automated monthly withdrawals at Vanguard.
Last edited by grayfox on Thu Sep 27, 2007 11:56 am, edited 4 times in total.
YDNAL
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Post by YDNAL »

seeker,

I like grayfox's suggestion, but grayfox did not address the other $600K [$100K in CDs and $500K in 401K].

That said, you seem to be a highly conservative investor because your most of your portfolio is invested in money market accounts and CDs. Your Asset Allocation [AA] is currently 25/75 Stocks/Cash.

edited: seeker provided additional info. as to why the 25/75 AA.

Regards,
Landy
Last edited by YDNAL on Thu Sep 27, 2007 12:09 pm, edited 1 time in total.
Topic Author
seeker
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Post by seeker »

The reason I have $1,400,000 in Tax-Exempt Insit,MM is that I just sold company stock and put the proceeds there until I'm ready to invest in 2008 or sooner.
Valuethinker
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Post by Valuethinker »

seeker wrote:The reason I have $1,400,000 in Tax-Exempt Insit,MM is that I just sold company stock and put the proceeds there until I'm ready to invest in 2008 or sooner.
Which is a really smart way to handle it, and invest only slowly in the assets of your choice.
Sidney
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Post by Sidney »

Valuethinker wrote:
Which is a really smart way to handle it, and invest only slowly in the assets of your choice.
Did you really mean invest slowly or did you mean "take your time developing a plan for the investments"? The former is a DCA-like approach to deploying a large sum. Many here would say move it all at once, when ready.
I always wanted to be a procrastinator.
curiousperson
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Post by curiousperson »

GIVE ME A BREAK!!!!!!!!!!!!

You come here asking for advice with 2 million or more already invested.
The majority here has FAR less than that sum.
Get off your BUTT and pay a finincial advisor for your questions.
If i were you i would be sitting my "BUTT" on a toilet reading the finincial news and laughing .(YOU PROBABLY ARE). (and also reading these replys).

Idon't believe it!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11

[WARNING FROM MODERATOR: This type of response is totally uncalled for. If you can't be more civil, simply refrain from posting a reply. Otherwise, you may need to find another forum to post on, since these types of replies will not be tolerated here. -- Mel]
Sidney
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Post by Sidney »

Curiousperson,

You are totally out of line. This is an open forum and we have no minimums or maximums. Please take your attitude somewhere else.

Thanks

Sid.
I always wanted to be a procrastinator.
livesoft
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Post by livesoft »

What happens if you die? Will your annuity go away and make your survivors (wife) have to eat into the portfolio? What happens to your social security situation in that event? Have you got plans for that?
InvestingMom
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Regarding SS

Post by InvestingMom »

You might check out the Oct issue of consumer reports. They have a pretty good article about deciding when to take SS. The gist of the article was that...if you can afford it....and it sounds like you can...it makes more sense to wait. But of course this depends on you and your wife's health.
Another consideration might be whether or not you think you or your wife will ever work again. You are relatively young and may change your mind. Your SS may be penalized (by taxes) if you are earning income....but admittedly I am not up on this.
Topic Author
seeker
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Post by seeker »

I really appreciate all the responses that have provided useful information and ideas.

My annuity of $20,000 would be for my lifetime

I'm not sure of the benefit of waiting on SS

I do not have any desire to work again
grok87
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Joined: Tue Feb 27, 2007 9:00 pm

Suggested Portfolio

Post by grok87 »

seeker wrote:I really appreciate all the responses that have provided useful information and ideas.

My annuity of $20,000 would be for my lifetime

I'm not sure of the benefit of waiting on SS

I do not have any desire to work again
Hi Seeker,
Here is one suggested portfolio (apologies for weak formatting). This based on the age in bonds rule of thumb- i.e. putting roughly 62% in bonds and 38% in stocks.

Fund ..........................................Amount Yield% Yield $
Vanguard NJ LT Tax ..............................650,000.. 4.11%.. 26,715
Vang. Adm. Value Index VVIAX..............500,000.. 2.65%.. 13,250
Vang. FTSE World ex US.(VEU)........... .....250,000.....2.07%......5,175
CDs .................................................100,000.. 5.00%.. 5,000
Total Taxable................................... 1,500,000 ......... 50,140

Vanguard IRA
VAIPX 500,000 (inflation protected securities)

Total 2,000,000

1) Comments: I agree with Grayfox about the Vanguard NJ LT Tax exempt fund. I own this myself.

2) IMHO I would avoid DVY and go with th Vanguard Value index. IMHO it is a mistake to pick equity funds primarily for their yield. Fama and French found value and small stocks to have better returns, but they did not find high yielding stocks to have better returns. The Vanguard Value index has a lower expense ratio than DVY (0.11% vs. 0.4%) and is less concentrated (it has 49% in top two sectors, finance and energy- DVY has 63% in its top two sectors finance and utilities).

3) I have assumed you will take SS early. As posters above have suggested this may not be the best thing to do. Thanks to InvestingMom for the great reference to the consumerreports article! Here's the link:
http://www.consumerreports.org/cro/mone ... 20security

4) I have suggested a sizable chunk in the Vanguard international fund VEU. I'm not sure of the yield so I used the Vanguard total international fund as a surrogate. It's important to be diversified and most planners recommend 30%-50% in international stocks.

5) Putting all your stocks in taxable is a good thing to do. This frees up your IRA for bonds and specifically inflation indexed bonds. Many people recommend 50/50 nominal bonds/TIPs.

hope this helps
cheers
grok
grayfox
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Post by grayfox »

Grok--Your portfolio suggestion using Vanguard funds sounds good and I agree with your comments. Also, I wasn't specifically recommending DVY but just using it as a simple example. I would prefer to go with low cost Vanguard funds, if possible.

Also, TIPS in IRA sounds like the best idea I would have for that money. However I would use a combination of individual TIPS and the TIPS ADMIRAL fund. (see other conversation)

One question is what would you estimate the growth rate of VVIAX and VEU?
Then you can see what the growth rate of the whole portfolio is and if it keeps up with inflation.
Valuethinker
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Post by Valuethinker »

seeker wrote:I really appreciate all the responses that have provided useful information and ideas.

My annuity of $20,000 would be for my lifetime

I'm not sure of the benefit of waiting on SS

I do not have any desire to work again
Hi the benefit of waiting on Social Security is you will get more inflation indexed income in the future.

It's really hard to buy that income, an income which never runs out, and which your spouse will also be eligible for, in the private sector. SS hedges both against longevity and inflation, and that's very expensive (or impossible) to buy in the private sector.

You may feel the increment of waiting another 4 years is not worth it. However I would urge you to assume you or your spouse will live to be 100 (a frightening number of my mother's female relatives, who were poor farmers in rural Ontario, lived to be 100). Then do the breakeven calculation ie 38 years at SS now, v. 34 years of SS starting at a higher rate.

(Barry Barnitz, in the Library Section, has very kindly started a list of SS links to papers)

Your fixed annuity and income from bond funds can cover you for the present. 30 years from now, with inflation, that SS income stream will be quite valuable.

(EDIT: we can't legislate for changes in SS. Whilst I don't think in the next 4 years the system will lower your benefit or raise your retirement age (without legislative warning) it may be that in time, more SS income is taxable (almost certain) and there are other reductions in benefits (although not in the level of cash benefits currently being received by retirees))
Last edited by Valuethinker on Fri Sep 28, 2007 7:14 am, edited 1 time in total.
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MossySF
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Post by MossySF »

Valuethinker wrote:Hi the benefit of waiting on Social Security is you will get more inflation indexed income in the future.
There's this option:

http://www.retireearlyhomepage.com/cheap_annuity.html

Start SS at 62. At age 70, pay back all SS money received from 62-69 and have your SS benefits step up as if you started benefits at 70. Ends up being an interest-free loan from 62-69. The issue for this specific case is the reduction of SS benefits from income generated by a 2M portfolio. Not sure if you have to only pay back the reduced benefits or the pre-reduced amount. The second scenario sounds unfair but I would not be surprised if that was the case.
ramsfan
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Post by ramsfan »

seeker wrote:The reason I have $1,400,000 in Tax-Exempt Insit,MM is that I just sold company stock and put the proceeds there until I'm ready to invest in 2008 or sooner.
Just want to check something....

Have you paid taxes on your stock sale yet? If not, do you owe taxes on it? If so, make sure you account for that....
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magellan
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Post by magellan »

grayfox,

I'm a bit confused about the recommendation for the tax exempt mm for this portfolio. Will the OP's tax rate be high enough to justify this compared to say prime or treasury mm? What tax rate's are you assuming the OP will end up with?

Thanks,

Jim
Topic Author
seeker
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Post by seeker »

I have $1,400,000 in Tax-Exempt now as a result of stock sale. Not intending to keep it there

I do owe tax on the sale which I have accounted for.
grok87
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New Vanguard Funds

Post by grok87 »

Seeker,
You might also be interested in these new Vanguard funds:
http://insurancenewsnet.com/article.asp ... 30b844acb3

there is thread currently active discussing them:
http://diehards.org/forum/viewtopic.php?t=6381

cheers
grok
grok87
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Post by grok87 »

grayfox wrote:Grok--Your portfolio suggestion using Vanguard funds sounds good and I agree with your comments. Also, I wasn't specifically recommending DVY but just using it as a simple example. I would prefer to go with low cost Vanguard funds, if possible.

Also, TIPS in IRA sounds like the best idea I would have for that money. However I would use a combination of individual TIPS and the TIPS ADMIRAL fund. (see other conversation)

One question is what would you estimate the growth rate of VVIAX and VEU?
Then you can see what the growth rate of the whole portfolio is and if it keeps up with inflation.
I agree that buying individual TIPs is good. I believe with certain asset levels you can buy for free at auction in a Vanguard account. All of my TIPs money is in individual TIPs not TIPs funds. The combination of individual TIPS and the fund is probably best given that the IRA would start facing mandatory withdrawals in about 8 years or so.

As far as the expected growth rate for stocks and stock funds, who knows? I pencil in about 8% nominal these days for total return= 4% risk free rate plus 4% Equity risk premium. So if dividend is 2.7%, then I guess expected growth would be about 5.3%.

cheers
grok
grayfox
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Post by grayfox »

magellan--Right. I guess details like whether tax-exempt mm or prime mm is left as an exercise for the reader based on current tax situation. Although in practice I usually don't bother calculating which is best and just opt for the tax-exempt knowing I will probably be in about 25% bracket and will have some taxable interest and a few capital gains most years.

grok--assuming 8% total return for both stock funds I calculated your recommened portfolio overall including TIPS yields 3.07% and overall growth rate is 2.70% for a total return of 5.78% (assuming 2.50% inflation growth for TIPs and current 2.27% real rate. (see table)

Code: Select all

GROK'S SUGGESTION                                             TOTAL RETURN 
ASSET            SYMBOL PERCENT PRINCIPLE YIELD INCOME GROWTH Nominal Real
VALUE INDEX      VVIAX  25.0%    500      2.65%  13.3   5.35%  8.00% 
FTSE WORLD ex US VEU    12.5%    250      2.07%   5.2   5.93%  8.00% 
NJ LT TAX-EXEMPT VNJTX  32.5%    650      4.11%  26.7   0.00%  4.11% 
CD               CD      5.0%    100      5.00%   5.0   0.00%  5.00% 
TIPS             VAIPX  25.0%    500      2.27%  11.4   2.50%  4.77% 

PORTFOLIO              100.0%  2,000      3.07%  61.5   2.70%  5.78%   3.28%
EQUITIES                37.5%    750   
FIXED                   62.5%  1,250      

50% BEAR MARKET DRAWDOWN  18.8%  1,625.0   
Last edited by grayfox on Sun Sep 30, 2007 5:24 am, edited 2 times in total.
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BigFoot48
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Post by BigFoot48 »

You're all set up for a great retirement. Congratulations!

I like bob's advice of considering Wellesley for a simple solution. I have that fund too, in a more (unnecessarily) complex "solution". I plan on taking SS in three years when I turn 62, having been "retired" for nine years and looking forward to having the government participate in supporting all my retirement fun.

One thing I would consider, having lived there and knowing the property taxes, is to move from NJ. I would never spend a significant portion of my retirement money paying taxes - that just doesn't make sense to me.

Good luck and health!
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 15-time loser
grok87
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Advantages of rolling 401k to IRA

Post by grok87 »

Seeker,
I tried responding to your PM but for some reason it doesn't appear to me to be going through. Here's what I wrote:

Hi Seeker,
I think there are two main reasons to roll a 401k to an IRA:

1) Better fund selection- more index funds, lower expense ratios, etc.
2) Estate planning

Re 1), I don't think you ever posted (in the sep 26 thread) the funds in your 401k so it is hard to know. You may have good funds there. Many people are stuck in terrible 401ks with expense ratios > 1% and can't wait to get out.

Re 2) I am not an expert, so you should verify these comments with someone else. I once read this book by Ed Slott
http://www.irahelp.com/consumers.php
called the retirement time bomb. The book seemed to say that a 401k can be bad for passing money on two heirs. From memory here's what I think the issue with leaving your money in the 401k:

Scenario 1: Your wife pre-deceases you. Then you pass on. Say you have named your son as the beneficiary of your 401k. He will be forced to cash out the 401k immediately taking a big tax hit.

Scenario 2: You pass on first. Now I think your wife could roll the 401k into an IRA. Say she doesn't and leaves the money in the 401k. Then when she passes on your son will have the same problem as Scenario 1.

I think if you roll the 401k into an IRA, name your wife as beneficiary and your son as contingent beneficiary you would avoid this tax issue. Once you and your wife pass on, your son would inherit the IRA and be able to stretch withdrawals over his lifetime rather than being forced to withdraw it all at once and take a huge tax hit.

hope this helps
cheers
grok
hstang
Posts: 91
Joined: Thu Mar 01, 2007 7:29 pm

Post by hstang »

A question about tax rates and rec to invest in NJ-muni fund (as per "greyfox's" suggestion).

Would "seeker's" tax rate (once fully invested) justify using muni's, or would he do better in a taxable bond fund?

Thanks,

hs
hstang
Posts: 91
Joined: Thu Mar 01, 2007 7:29 pm

Post by hstang »

ps...he'd have 20k from SS, 20k from pension, dividend income from dvy and either tax-free or taxable interest from bond funds. Again, I don't understand why tax-free interest is suggested, considering presumed low tax rate.

Thanks,

hs
retengr
Posts: 26
Joined: Sun Mar 18, 2007 9:55 am
Location: Florida

Re: Advantages of rolling 401k to IRA

Post by retengr »

[quote="grok87"]Seeker,
Re 2) I am not an expert, so you should verify these comments with someone else. I once read this book by Ed Slott
http://www.irahelp.com/consumers.php
called the retirement time bomb. The book seemed to say that a 401k can be bad for passing money on two heirs. From memory here's what I think the issue with leaving your money in the 401k:

Scenario 1: Your wife pre-deceases you. Then you pass on. Say you have named your son as the beneficiary of your 401k. He will be forced to cash out the 401k immediately taking a big tax hit.

hope this helps
cheers
grok[/quote]

Grok

I think this has changed--for some 401Ks, at least. Plans now may let non-spouses inheriting a 401K roll them over to an inherited IRA, just like they could for an IRA. The catch is that the 401K does not HAVE to do this--they CAN do it if they have have established the procedure. I asked my Boeing Plan, they have instituted the procedure.

If the 401K does not allow the rollover procedure, beneficiaries can still get the money distributed over 5 years, I think (again, the 401K manager has the call on this).

Paul
User avatar
SpringMan
Posts: 5422
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Post by SpringMan »

Seeker,
I did not see any mention of your wife's assets in your post. Did you lump her assets in with yours? Even if she never worked, she can collect social security based on yours, should be about half of yours I believe. Don't forget to include that, it could be another $10,000 per year. If she has 401k/IRAs those would help too. Congrats on your retirement. I retired just before I turned 58, and am now 60. I am like you in that I have no desire to go back to work. We are in a very similar situation, maybe a little more aggressive with a 60/40 allocation.
Best Wishes,
Best Wishes, SpringMan
clay
Posts: 233
Joined: Sat Jun 30, 2007 11:08 am

In addition to

Post by clay »

You come here asking for advice with 2 million or more already invested.
The majority here has FAR less than that sum.
Get off your BUTT and pay a finincial advisor for your questions.
If i were you i would be sitting my "BUTT" on a toilet reading the finincial news and laughing .(YOU PROBABLY ARE). (and also reading these replys).

Idon't believe it!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11
The rudeness of this has been pointed out. I would add that here you will get a range of advice, not just one advisor's point of view, and that the sad fact is that many advisors (certainly not all) are out to help themselves, rather than you.
grok87
Posts: 9284
Joined: Tue Feb 27, 2007 9:00 pm

Re: Advantages of rolling 401k to IRA

Post by grok87 »

retengr wrote:
grok87 wrote:Seeker,
Re 2) I am not an expert, so you should verify these comments with someone else. I once read this book by Ed Slott
http://www.irahelp.com/consumers.php
called the retirement time bomb. The book seemed to say that a 401k can be bad for passing money on two heirs. From memory here's what I think the issue with leaving your money in the 401k:

Scenario 1: Your wife pre-deceases you. Then you pass on. Say you have named your son as the beneficiary of your 401k. He will be forced to cash out the 401k immediately taking a big tax hit.

hope this helps
cheers
grok
Grok

I think this has changed--for some 401Ks, at least. Plans now may let non-spouses inheriting a 401K roll them over to an inherited IRA, just like they could for an IRA. The catch is that the 401K does not HAVE to do this--they CAN do it if they have have established the procedure. I asked my Boeing Plan, they have instituted the procedure.

If the 401K does not allow the rollover procedure, beneficiaries can still get the money distributed over 5 years, I think (again, the 401K manager has the call on this).

Paul
Paul,
Thanks for the clarification. Since all of this is at the 401k sponsor's discretion, and presumably they can change it whenever they want, it still seems like rolling into an IRA is the safer course.
cheers
grok
Topic Author
seeker
Posts: 12
Joined: Wed Sep 26, 2007 4:45 pm

Post by seeker »

Is this advice still valid or would anyone change their opnion in the current enviroment.
User avatar
sergeant
Posts: 1710
Joined: Tue Dec 04, 2007 11:13 pm
Location: The Golden State

Post by sergeant »

What has changed since you posted this? None of the advice given you a few months ago has gone bad.
Rich_in_Tampa
Posts: 104
Joined: Wed Aug 29, 2007 1:38 pm
Location: Tampa, Florida

Post by Rich_in_Tampa »

seeker wrote:Is this advice still valid or would anyone change their opnion in the current enviroment.
Seeker, one good way to judge the quality of the advice given to you is that it should be designed to weather the ups and downs.

If your plans are such that you find yourself worried about what a 10% or 15% drop in the market would do to you, a better plan is probably in order.

You might take a look at Firecalc.com for reassurance.
Rich
grok87
Posts: 9284
Joined: Tue Feb 27, 2007 9:00 pm

Post by grok87 »

seeker wrote:Is this advice still valid or would anyone change their opnion in the current enviroment.
Doing a quick look back I had recommend the vanguard value index and warned about the DVY fund. I just checked morningstar- the 1 year trailing returns show VVIAX to have outperformed DVY over the past year. I suspect this is due to DVYs heavier sector concentration in financials.

Diversification is a good thing!

:-)
cheers
grok
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